Is It Better to Promote From Within?

April 3, 2012 7:25 p.m. ET

Managers choosing whether to hire from outside or promote from within, consider this: outsiders earn more, but they tend to perform worse than insiders.

A new study by Matthew Bidwell, an assistant professor at the University of Pennsylvania's Wharton School, found that external hires get paid 18% to 20% more than internal employees do for the same job, but they get lower marks in performance reviews during their first two years on the job.

The study, published recently in the journal Administrative Science Quarterly, examined six years of employee data from the U.S. investment banking unit of a financial-services firm, covering nearly 5,300 employees in a wide range of positions. Dr. Bidwell also examined additional data from another investment bank and a publishing company.

Not only were outside hires more expensive, but they were also 61% more likely to be laid off or fired from that position and 21% more likely than internal hires in similar positions to leave a job on their own accord, Dr. Bidwell found.

External hires tended to have more education and experience than internal workers, but those credentials didn't always result in strong performance—especially in a new company culture, he said. By contrast, workers promoted from within have valuable firm-specific skills that can translate into better performance reviews.

Dr. Bidwell said that external hiring has become more prevalent in the past three decades, especially in large organizations and for high-level positions. But he said that companies should spend more time figuring out how to promote from within.

Hiring managers may be tempted by a fresh perspective or a prestigious résumé, but they "underestimate how hard it is to integrate new people," he said.

—Rachel Emma Silverman

Benefits Matter

Beefing up the company's benefits package may prevent valued workers from walking away when the economy warms up, two new studies suggest.

In a survey of 6,151 American workers, 71% said their overall benefits—including medical insurance, disability insurance, 401(k) plans and other programs—would influence their decision to leave their employer, supplementary-insurance provider Aflac found.

And 61% said they would be likely to accept a job with slightly lower compensation but a better benefits package.

Even young workers are thinking about long-term benefits, according to Towers Watson, which canvassed 9,218 U.S. employees. The human-resources consulting firm found that 63% of employees under 40 who work for firms with traditional pension plans cited those programs as an important factor in accepting their jobs, and 72% of workers at such firms said the pension was a strong incentive to stay put—a figure that was twice the retention value of defined-contribution plans such as 401(k)s.

—Lauren Weber

Taking Time for Others

Tired of feeling starved for time? Try spending it on someone else, says a new paper by researchers at the University of Pennsylvania's Wharton School, Harvard Business School and Yale School of Management.

Cutting back on commitments is the usual response to feeling harried, but the new research—to be published in a coming issue of Psychological Science—found that people who donated time to others actually experienced feelings of "time affluence," a sense of having ample time to complete other tasks.

A person need not give away whole days, but even small tasks—editing a friend's résumé, making the morning coffee run, volunteering with a charity—can provide a sense of accomplishment, and the more accomplished one feels, the more time they feel they have, said Michael Norton, a marketing professor at Harvard and co-author of the study.

In four experiments, participants were evaluated on their sense of "time affluence" after performing tasks for themselves and tasks for others.

"If we can signal how much time we have to others, that lets us feel like we have more time," said Mr. Norton.

Still, the paper noted, there is an upper limit to how much time one can give away before it starts negatively affecting productivity.

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